has economic well-being improved in western nations? lars osberg department of economics, dalhousie...
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Has Economic Well-being improved in Western
Nations?
Lars OsbergDepartment of Economics, Dalhousie University
Halifax, Nova Scotia
Presentation at Wuhan University, November 24, 2001.
Recent Trends Standard Indicators
– GDP per capita up, more so in USA– Hourly wages up, but not much– Employment up, especially in USA
So What ? – What is the connection to Economic Well-
being ?• GDP excludes leisure, environment & more• Wage = price of labour ; potential consumption?• Unemployment = unused labour; insecurity ??
Questions Has economic well being increased or
decreased ?
How “productive” is economic growth for economic well-being?
What should we do differently, if well-being is actually what we want to improve ?
What is Economic Well-Being?
Economic Well-Being < Well-Being Economic Well-Being > GDP Economic output > Marketed output
– GDP omits value household labor GDP omits many sources utility
– value of leisure, length life, etc. GDP includes “regrettable expenditures”
– Costs of pollution, crime, etc
Human Well-being
Economic Well-being
Economic Well-being
Well-being and GDP
GDP
Economic Well-being
GDP
“Social regrettables”
GDP
Economic Well-being
GDP
“Social regrettables”
GDP per capita GDP rigorously standardized across countries
(SNA) Strong Implicit assumptions when used as
measure of economic well-being– aggregate share of income devoted to accumulation (including
value of unpriced environmental assets) automatically optimal– poverty, inequality & economic insecurity do not matter– changes in leisure time, length of life, family size, costs of
commuting, pollution & crime - all irrelevant
poor match to popular perceptions of trends in economic well-being
ECONOMIC WELL-BEING= a1 [ CONSUMPTION]+ a2 [TOTAL WEALTH]+ a3 [ DISTRIBUTION]+ a4 [INSECURITY]
DIFFERENT VALUES WILL IMPLY DIFFERENT WEIGHTS
Setting weight equal to Zero is a (strong) value choice
Model
Consumption flows
Stocks of wealth
Economic equality
Economic security
EconomicWell-Being
Average Consumption Flows $ Marketed real consumption per capita
– Adjustments • value of increased longevity• reduced economies of scale in household consumption• changes in working hours – leisure
Government services– provision of non-marketed or heavily subsidized
services• includes defense and capital consumption allowances
– excludes debt service charges and transfer payments
Figure 5 Trends in Average Consumption in the USA and Canada
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
Canada
United States
Source:see appendix tables A1
Wealth Stocks, Sustainability and Intergenerational Bequest $
Physical capital stock Research and development capital stock Value of natural resource stocks
– price + quantity change Stocks of human capital (@ cost education) Net foreign indebtedness (-) State of environment and national heritage
(degradation -)
Figure 6Wealth Accumulation Trends in the USA and Canada
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
Canada
United States
Source: see appendix table A1
Distribution
Inequality– Gini coefficient
• After-tax & transfer household income• Equivalence scale =
Poverty– Sen-Shorrocks-Thon measure
• Rate• Average poverty gap ratio• Intensity = rate x gap
familysize
“Economic Security” Risk income loss due to unemployment
– changes in employment rate x UI coverage x UI replacement rate
Risk of illness– medical expenses as share of disposable income
Risk of single parent poverty– poverty rate & gap for single women with children
– divorce rate of legally married couples
Risk of poverty in old age– chance x depth of elderly poverty
Economic Security weights for 1997
Figure 8 Trends in Economic Security
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
Canada
United States
Source: see appendix table A1
How different is trend in Economic Well Being &GDP?
Trend in Economic Well Being depends partly on how heavily current consumption is weighted compared to accumulation, inequality & insecurity
Experiment with two sets weights– Heavily weighted to consumption (70%)– Equal weighting all components (25%)
Australia
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
United Kingdom
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
United States
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
Canada
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
Sweden
0.85
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Index of Wellbeing, Equal Weighting (0.25+0.25+0.25+0.25)
Index of Wellbeing, Alternative Weighting (0.7+0.1+0.1+0.1)
GDP per capita Index
Policy Implications ? Much less gain in economic well-being than
in real GDP per capita 1970-99 Major reason has been growth in inequality
& insecurity – Reducing Inequality & Insecurity has been the
major objective of social programmes – de-emphasized in recent years
Social Policy Design should aim at increasing Well-Being
The role of the natural environment
Natural Capital
GDPEWB
Physical Investment
Natural Capital
Produced Capital
GDPEWB
Human and Social Capabilities
Natural Capital
GDP
Human and Social Capabilities
Produced capital
EWB
The role of knowledge/skills
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB
The role of networks/social norms
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB
Social capital
A DIGRESSION
Human Capital
“The knowledge, skills, competencies and
attributes embodied in individuals which
facilitate the creation of personal, social
and economic well-being”
Social Capital
“Networks together with shared norms,
values and understandings which
facilitate co-operation within or among
groups”
Close ties between human and social capital
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
The role of institutions
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
Political, institutional and legal arrangements
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
Political, institutional and legal arrangements
Natural Capital
GDP
Human and Social Capabilities
Human capital
Produced capital
EWB Social
capital
Political, institutional and legal arrangements